CRM Software Negotiation Strategy


  • Most companies are paying 15-35 percent more than they should for their annual CRM software subscriptions. They also fail to lock in favorable price caps for their CRM subscription renewals.
  • Tactical CRM negotiation is not really negotiation; it's wishful bargaining and achieves disappointing results. Strategic CRM negotiation applies outcomes-based value creation, creative solutioning and objective leverage that generally results in 20 to 55 percent CRM contract cost savings.
  • A structured CRM negotiation strategy can lower CRM software price at initial purchase and renewals, acquire valuable services that reduce implementation time and risk, and significantly improve the CRM ROI.

When it comes to purchasing Customer Relationship Management (CRM) software, we know that successful CRM negotiation is most aided with a clear negotiation strategy.

Research from the CRM Software Negotiation survey found that many companies make a lackluster effort to negotiate CRM software purchases. Some buyers negotiate haphazardly while others minimize the effort because they believe the vendors have control. Yet those buyers that approached their CRM software negotiation strategically saved an average of 15 to 35 percent more than those who did not.

Lets Make a Deal

CRM software buyers are looking for the best deal on the best product.

CRM software sellers are looking for customers to spend as much as possible. That means the maximum acquisition costs, plus upsell and cross-sell where possible, and year over year (or contract period over contract period) increased spending.

Parties with different interests and objectives can find common agreement. But be clear that the most strategic, informed and prepared party will achieve the most favorable outcomes for their company.

Here's the CRM negotiation strategy we use when assisting clients with their CRM software purchases.

CRM Software Negotiation Strategy

CRM Negotiation Phase 1: Team and Timing

Strategic CRM negotiation begins well before receiving the first quote from the vendor.

Time is your friend if you begin early and define a sequenced timeline. Otherwise, the side that is the most time starved is the side at a disadvantage. Further, fast negotiations are less effective and increase risk for the buyer. Therefore, it is critical to begin early and allow planned lead time.

Timing is also important as it impacts bargaining power. For almost all CRM software purchases, you will get the best deal in the fourth quarter of the vendor's fiscal year. If you are unable to align your purchase timing to the preferred vendor's fiscal year end, then align it for the end of a quarter.

CRM Negotiation Schedule

And don’t let the inevitable vendor offered time-sensitive discount create an artificial sense of urgency. A rash decision is rarely the right decision and most CRM discounts can be salvaged after their expiration period.

Successful CRM software negotiation is a team effort. Assemble a cross-functional negotiation team that includes business stakeholders, IT management, procurement staff, finance staff, legal counsel and subject matter experts where necessary. The negotiation team should assign responsibilities, set clear negotiation goals and create a decision support framework.

It's likely that not all negotiation team members will meet with the vendor sales staff. In fact, many software negotiation strategies limit direct vendor conversation to the fewest number of people required and designate a single person to be the primary negotiator and point of contact.

CRM Negotiation Phase 2: Preparation

The side who prepares the best does the best.

Preparation includes understanding the company's needs, the preferred vendors negotiation history and disposition, viable alternatives and the market dynamics that may sway the vendors behaviors.

The company's CRM needs should be solidified in a CRM Solution Blueprint.

The Blueprint identifies what CRM software is needed by who and when to achieve defined benefits. Or put another way, it specifies CRM software scope (capabilities, functionality, subscription tier, support services), when software is needed, defined users for each part of the application and the relative or measured value for each application. The Blueprint should project CRM software requirements over a 3- or 5-year horizon. It is essential to collaborate with each department to understand their expected growth and any future capabilities.

Defining CRM software scope is challenging because it requires expertise of both the CRM software application and knowing what CRM software is needed to achieve slated business objectives.

Timing is included so that CRM software can be purchased when it's needed. No sense in buying all the user licenses or customer support now if the implementation go-live event is many months down the road.

Our CRM Blueprints are graphical diagrams with supporting footnotes for explanations and dynamic models that calculate budget, total cost of ownership (TCO) and ROI. We find this format is simple to consume and easy to update. The Blueprint will be used again at each CRM subscription renewal.

Unless you create your own CRM Solution Blueprint, the vendor will do the solutioning for you. And that's probably not going to be to your advantage.

CRM software negotiation is not about posturing or hard ball tactics. It's about knowing where the preferred vendor stands relative to your objectives and the other competitors. That's best done with the objective scorecard created in the CRM evaluation process. Without objective scoring and relative comparison, it's too easy to become emotionally attached, omit important items and miss the opportunity to secure the best CRM software deal.

It's also crucial the negotiation team understand their CRM software options. Did the CRM evaluation rank the top vendors so close that any of them are viable solutions? Are the users open to the best deal even if it's not with their preferred vendor? If the buyers have already committed their purchase intent to the preferred vendor than any negotiation will be severely limited.

CRM buyers also want to know what other customers paid for the same CRM software. What's the normal discount? The CRM Price and Discount Benchmark report reveals these answers for market leaders such as Salesforce, SAP and Microsoft Dynamics.

CRM Discounts by Vendor

Preparation is also aided with market insights. Understanding the CRM software market and competitor dynamics creates knowledge and knowledge is power. Knowing the preferred vendors primary competitors as well as any emerging entrants puts the preferred vendor in a more objective position.

The reality is that there are many great CRM software applications. Understanding where the CRM systems are different, and where they are not, will help negotiators know where to push and when to let go.

Finally, finish this phase by identifying your negotiation objectives. This may be a list of weighted priorities. Sometimes goals are stated as 'must have' or 'nice to have.' You cannot negotiate everything at once so your list will help you sequence goals in a logical order.

Developing your weighted objectives is less about identifying price concessions and more about prioritizing what is needed to achieve an acceptable agreement. It's also important to define an unacceptable agreement and what point it makes sense to shift to the next in line vendor.

If you do not have the option to select an alternative to the preferred vendor, then the negotiation becomes more of a due diligence exercise to understand the commitments you are making and expectations you are accepting.

CRM Negotiation Phase 3: Strategic Execution

Now it's time to negotiate. But first ensure you are negotiating with a vendor representative empowered to make compromises and reach a decision. Otherwise you are wasting your time, losing your fair position and likely dealing in vendor gamesmanship.

CRM negotiation is focused in the three areas of price, services, and terms and conditions.

It's important that CRM price be considered in the context of the overall Total Cost of Ownership (TCO).

Price negotiation will seek a lower acquisition cost and price caps if the subscription is renewed. Getting a low CRM software price is short lived if the renewal reverts to a higher price. Now is the time to negotiate CRM price protection and renewal pricing.

To avoid hidden costs and future surprises, get everything that may impact price on the table. Are there extra charges for data storage, sandboxes, advanced features, customer support, etc.? Request a list of all available software or services from the vendor so you prevent omissions and avoid future surprises.

And to future proof the deal it's a good idea to plan for changes in circumstances. For example, you want price flexibility if the company grows or declines. It should be as easy to scale down user licenses as it is to scale up.

Services and support negotiation will acquire or bundle vendor services that aid the customer's implementation or production operation. This part of the agreement should include agreed upon performance measures and a Service Level Agreement (SLA). Many CRM vendors will throw in an architect or subject matter expert to assist in the CRM planning at no cost.

Terms and conditions generally include disclosures and fine print that almost exclusively benefit the CRM vendor and not the customer. Modifications may be needed to include rights and remedies for data privacy and security, intellectual property protection, dispute resolutions, termination provisions and simple tasks such as whether you can download your data on demand. CRM software contracts have a lot of fine print that must be combed through, which is why you need the advice of competent legal counsel for these and all matters related to the agreement.

The CRM contract may also specify outcomes for conditions that may or may not occur. For example, is the CRM software transferable if the company gets acquired? Or can a divested subsidiary continue to use the CRM software for a period of time?

It can also include provisions which seem unlikely but are more likely than you think. For example, agreements give the vendor audit rights to conduct periodic verifications of your software usage. Countering this provision with audit protections, such as limiting when audits can occur, defining how invasive they can be, limiting how many times they may occur and receiving the audit reports can reduce business disruption.

As you are negotiating keep a tally of the outcomes. This is best done as part of the previously described negotiation objectives list.

Your success in reaching favorable concessions is directly proportional to the competitive landscape you created during the CRM software evaluation. CRM vendors become far more flexible when there are credible competitors. There is no need to identify the alternative solutions, and a formal CRM negotiation strategy suggests that you selectively share comparative points (i.e., fit, cost, risk) without sharing competitor names.

Finally, end the CRM software negotiation on a high note. People don’t remember the details long after the negotiation period. They just remember the final sticking points and the outcome. The last impression is the lasting impression so create an opportunity to thank and congratulate the vendor and team, reference something the vendor did that you appreciated and look forward to a mutually beneficial relationship.